Tax classification remains Worcester's big story

Sunday

Dec 8, 2013 at 6:00 AMDec 8, 2013 at 7:27 AM

By Nick Kotsopoulos POLITICS AND THE CITY

Forget about seismic changes taking place at Worcester City Hall.

Forget about the talk about whether the annual salary for the mayor's position should be increased by $9,500, to $43,500, for what is supposed to be a part-time job for a person who has two full-time staffers.

And, forget about the encouraging prospects on the downtown development front, with talk of the construction of two hotels (250 rooms total), a 350-unit, market-rate residential development, 15,000 square feet of retail space and a 550-space underground public parking garage.

Now comes something that people really care about and probably have the greatest interest in: the setting of the tax rates for this fiscal year.

Yes, it is that time of year once again when the City Council Tuesday night will attempt to mediate the ongoing tug-of-war between residential and business property owners over the tax rates.

People care more about the setting of the tax rates than anything else largely because whatever is decided by the council, it will have more of a direct impact on their personal or business budgets than most anything else.

Since 1984, the City Council has set separate tax rates for residential and commercial-industrial properties, using tax classification to shift more of the tax burden from residential to business property owners.

In retrospect, there are those who say that may have been the biggest mistake made by the council because it has created nothing but headaches and division.

Others, however, say the City Council back then had no choice but to adopt the split tax rates, because many homeowners at that time were facing big hikes in their property assessments in the wake of court-ordered property revaluation. Without the split tax rates, some feel a number of people could have ended up losing their homes.

In the process, however, tax classification has pitted homeowners, who more often than not have sought the lowest possible residential tax rate, vs. business owners, who have sought a more balanced tax structure in the city.

When the City Council adopts the lowest residential tax rate, as it has on several occasions since 1984, it translates into the highest possible tax rate for business owners. There are those who feel that has stunted business growth in Worcester.

In an article posted last week on Governing Magazine's website, Stephen D. Eide, a senior fellow at the Manhattan Institute's Center for State and Local Leadership, and Roberta Schaefer, president and chief executive officer of The Research Bureau, wrote about the impact that has had on the business climate in Worcester.

"The Worcester City Council sets a high priority on ribbon-cutting opportunities and the lowest possible taxes on homeowners," the authors wrote. "Meanwhile, property-tax rates for businesses are among the highest in the state and more than double the rate found in nearby, wealthier communities with which the city most regularly competes for economic development.

"The high cost of doing business has caused Worcester to make heavy use of tax breaks to stimulate development," they added. "These programs have deprived the city treasury of revenues needed to support services and, for the vast majority of businesses still paying the full freight, only compounded the unfairness of the overall tax climate."

Their argument is underscored by the fact that while residential property accounted for nearly 72 percent of Worcester's total property valuation last year, homeowners funded just 61 percent of the tax levy. In comparison, business properties account for 28 percent of the tax base, yet, their owners funded 39 percent of the tax levy.

Last year, the City Council moved to close the gap between the tax rates for residential and commercial-industrial properties. It came about in large part because of an unprecedented agreement reached between neighborhood groups and the Worcester Regional Chamber of Commerce.

Instead of opposing each other each year, they agreed to support a set of tax rates that moved away from the lowest residential rate, saying it was best for the city as a whole.

The big question as the City Council approaches Tuesday night's tax classification hearing is whether it will take another step toward closing that gap further, or whether it will reverse direction.

So far, the silence on the issue has to lead one to believe that no similar agreement between neighborhood groups and the chamber has been reached yet, if one is even going to be reached at all.

That may be because business owners may be looking for a more favorable tax rate than neighborhood leaders are willing to agree to.

That's because while average valuation for commercial property in the city has increased by nearly 3.8 percent, the average valuation for most residential properties — excluding apartment buildings — rose at an even more modest pace. In fact, the average valuation of single-family homes fell by 0.70 percent.

A new factor in this year's tax classification debate is the role to be played by former Mayor Timothy P. Murray, who is now the president and chief executive officer of the Worcester Regional Chamber of Commerce.

During his tenure on the council, Mr. Murray often pushed for a more favorable tax structure in the city and succeeded at times in getting his colleagues to narrow the wide gap between the residential and commercial-industrial tax rates.

As the new head of the chamber, it's probably a safe bet that Mr. Murray is going to lobby the council to continue the progress that has been made in establishing a more balanced tax structure in Worcester.

And it also pretty safe to say that Mr. Murray will carry more clout with the council than his predecessors at the chamber. In fact, it would be most surprising if the council reverted back to favoring the lowest residential tax rate or even headed back in that direction.

The fact that Worcester's tax levy for this fiscal year has increased by 4.5 percent, from $240.1 million to $250.8 million, is a sign that taxes will be going up.

In a perfect world, each taxpayer's bill would go up by an average of 4.5 percent, but history has shown that tax classification has been anything but a perfect process in Worcester.

Contact Nick Kotsopoulos at nicholas.kotsopoulos@telegram.com

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